Sky Extends Warner Output Deal, Posts Higher Earnings

The European pay TV giant, led by Jeremy Darroch, posts results for its fiscal first-half.

European pay TV giant Sky on Thursday reported higher earnings for the first half of its fiscal year and said it has extended a movie output deal with Warner Bros.

Financial details of the multi-year deal weren't disclosed. "We're enhancing the Sky Cinema proposition, having agreed a new deal in the U.K. and Germany with Warner Bros.," Sky said. "This will give customers faster access to new titles and a stronger lineup of iconic franchises including all Harry Potter titles, Christopher Nolan's Batman trilogy, the Lord of the Rings and the Lego movies."

Said Jeffrey Schlesinger, president, Warner Bros. Worldwide Television Distribution: “Our friends at Sky have been great partners, and Sky Cinema has been a terrific home for our movies for many years. We are pleased to have the opportunity to not only continue our strong relationship with Sky but to build upon it even further.”

Added Ian Lewis, group director of Sky Cinema: “When it comes to movies, Sky Cinema offers our customers the best choice, the best platforms and our renewed deal with Warner Bros. will strengthen our service even further. Warner Bros. offers some of the most iconic films, actors and directors, and we’re thrilled to continue this relationship.”

Under the deal, Sky will offer subscribers a range of channels dedicated to some of the biggest Warner movie franchises, including Harry Potter, Lord of the Rings, Matrix, Mad Max and DC Comics.

Sky, led by CEO Jeremy Darroch, also said it grew its subscriber base. The company added 365,000 retail customers in the six-month period — led by 180,000 in the U.K. and Ireland — after adding 22,317 in the year-ago period, with wholesale customers down 8,.000, compared with 26,211, leaving total customers up 284,000 at more than 26.4 million.

Adjusted operating profit for the company's first half of the fiscal year rose 24 percent, and adjusted earnings per share rose 11 percent.

"We will grow our investment in Sky originals every year and we expect, over time, to be spending less on second-tier sports, linear-only entertainment channels and niche movies," said Darroch. "In 2018, we'll showcase over 50 Sky original productions across eight key genres, including four dramas a quarter across our territories. We are differentiating our programming to other services, with a distinct focus on creating content that is local to our key markets. Growing our Sky Original content investment means we can offer our customers local content with very high production values, something our research shows our customers value more than acquired content in many cases. In addition it enables us to control the value chain for an increasing proportion of our standout content, while broadening our sources and reducing our dependence on individual content suppliers."

21st Century Fox currently owns a 39 percent stake in Sky and has offered to buy the remaining 61 percent. The takeover is currently being reviewed by Britain's Competition and Markets Authority (CMA), which earlier this week published its preliminary report, which raised concerns about the deal's impact on media plurality in Britain given the Murdoch family that controls Fox also owns various newspapers. Walt Disney in December unveiled a $52.4 billion deal to acquire big parts of Fox, including its stake in Sky.

Asked about possible remedies to seal the deal, which the CMA has suggested could include the sale of Sky News or a new governance setup, Darroch on an earnings call said the process of negotiating with the CMA was "predominantly led by Fox. "We're just going to work through that and then we will see where that takes us," he said. "I won’t give a running commentary."

Darroch was also asked if he was worried about the upcoming end of Game of Thrones given that Sky's Sky Atlantic channel features that show and other HBO output. “I wouldn’t say worried about it," he said, highlighting Sky's "very strong pipeline" of content and saying that "increasingly we are commissioning jointly with HBO ourselves." He added: "I am sure they got some great ideas for a post-Game of Thrones world."

Discussing the original drama boom and its risks, Darroch said Sky was focused in its originals strategy on local dramas that complement other programming, such as German original Babylon Berlin and Italy's Gomorrah. He argued that space "is going to be the right place to be" for Sky.